Features

Meredith, the Publishing Company That Beat the Internet

On the eve of Valentine’s Day, news of a surprising courtship roiled the magazine industry. Meredith (MDP), the demure Iowa-based publisher of upbeat women’s service magazines (including Better Homes and Gardens, Ladies’ Home Journal, and Traditional Home), was on the verge of taking over the majority of Time Warner’s (TWX) roaring glossies (including People, Entertainment Weekly, and InStyle). It seemed like an odd pairing that could be a coup for Meredith.

To begin with, there was the size difference. Meredith, with 3,300 employees and $1.4 billion in annual revenue, would be taking over the bulk of a division with roughly 8,000 employees and $3.4 billion in revenue. Like Time Warner, Meredith, which has a market cap of $1.67 billion, is publicly traded. The union would suddenly make Meredith the biggest magazine publisher in the country. Yet it was hard to imagine a couple with such different tastes. If the merger succeeded, the owners of Better Homes and Gardens would be publishing, among other things, a British lad magazine called Nuts. And every fall henceforth, the company behind Ladies’ Home Journal would be crowning People’s Sexiest Man Alive.

Before the world got to see what the offspring of Meredith and Time would look like, the romance cooled. On the evening of March 6, Time Warner announced it would go solo for the time being and spin off its magazines into a new, publicly traded company. Meredith Chief Executive Officer Stephen Lacy quickly released a statement indicating there were no hard feelings and leaving the door ajar for further talks. “There are natural synergies between our two portfolios,” said Lacy in the release. “However, we respect Time Warner’s decision and certainly remain open to continuing a dialogue on how our companies might work together on future opportunities.”

That the deal was even proposed suggests how much publishing has changed. With the advent of the Internet, the primary sources of revenue—circulation and advertising—have eroded, while the costs of printing magazines—ink, paper, and distribution—continue to rise. In the 20th century, publishers of all shapes and sizes looked to Henry Luce’s Time Inc. for ideas on how to make profitable magazines. But in the months and years to come, they are much more likely to look to Meredith to figure out how to survive.

Meredith has profited from a few key strategies. They are experts at repurposing their content across multiple platforms (magazines, books, websites, mobile devices, tablets, etc.) and aggressively look beyond advertising and circulation for revenue. In print, they stay as far away from the news as possible. They are particularly successful at licensing their magazine titles’ names to major national businesses selling branded products; they also run their own marketing agency. Meredith hasn’t been immune to the forces battering the industry. But over the past decade, by strategically tweaking their portfolio, they’ve managed to maintain steady profits and reliable margins year after year in spite of the turbulence. (Lacy declined to comment.)

Images collected by Bloomberg Businessweek from various Meredith Publications

In February, Meredith published one of its signature editorial products—a “bookazine” called Chicken Dinners. It was flush with ads, co-branded under the Better Homes and Gardens imprimatur, and sold with no expiration date. In theory, it could live on a newsstand—or a coffee table or a kitchen counter—for many months. “Chicken Dinners is Chicken Dinners whether you buy it in May, June, or July,” says Samir Husni, the director of the Magazine Innovation Center at the University of Mississippi.

Some 88 years after Harold Ross launched The New Yorker with the pitch that it was “not edited for the old lady in Dubuque,” Iowa is turning into a surprising seat of power. “Time was so influential in transforming the news into a form of entertainment,” says Isaiah Wilner, the author of The Man Time Forgot: A Tale of Genius, Betrayal, and the Creation of Time Magazine. “Now we can get style and attitude and personality on the Internet for free. The old meat-and-potato magazines might have a better shot of survival these days because they’re delivering something that people still need. … This is the revenge of the old lady from Dubuque—only she’s from Des Moines.”

Meredith’s headquarters is a well-manicured campus in downtown Des Moines. The facilities include roughly 5,000 square feet of luxurious test kitchens where staff test and retest every recipe that goes into the company’s magazines. According to the Des Moines Register, the kitchens were remodeled in 2005 at a cost of $3 million and feature bamboo floors, marble countertops, and remote-controlled cupboards. Meredith also maintains an elaborate test garden. A red, 24-foot-tall, ornamental gardening trowel by the artists Claes Oldenburg and Coosje van Bruggen stands outside. Although the company has maintained a sizable presence in New York, the majority of the workforce is in Iowa.

Making magazines far away from midtown Manhattan provides more than just a different perspective. It’s also cheap. Andrew Wagner edited Meredith’s ReadyMade magazine, on the subject of DIY culture and design, from 2009 until 2011, when the company shuttered it because its circulation growth fell. He says that editorial conformity is paramount. “There’s very much a Meredith style,” says Wagner. “Especially for the home titles. They have an amazing photo studio. … It’s really impressive. But they use the same photographers who light things the same way. Everything Meredith does is geared towards standardization and affordability.”

To generate ideas, photographs, articles, and lifestyle tips, Meredith has cultivated a roster of far-flung freelance contributors known as field editors or regional contributors. The masthead for the March 2013 issue of Better Homes and Gardens lists 36 regional contributors in places such as Galveston, Tex., and Raleigh, N.C.

“We had this pipeline of content,” says Karol DeWulf Nickell, who served as editor in chief of Better Homes and Gardens from 2001 to 2006. “We never had the overhead of on-staff photographers, which is really important to the cost structure. The model is just different from the high-end photo shoots of some of our competitors.”

Meredith’s devotion to service journalism dates back to its roots. Edwin Thomas Meredith, who founded the company in 1902, got started with Successful Farming, which Meredith still publishes. In 1922, Meredith launched Fruit, Garden and Home, a service title aimed at middle-class families, which later became Better Homes and Gardens. Along the way, Meredith came up with a guiding editorial edict still followed to this day: “no fiction, no fashion, no piffle, no passion.”

Meredith has always steered clear of news and time-sensitive stories. In recent years it’s been building and acquiring websites designed to appeal to mass female audiences with service-oriented, evergreen content. In 2012 it purchased Allrecipes.com, which PaidContent described as “the world’s largest food website,” from Reader’s Digest Association for $175 million. In a call with analysts in January, Lacy said digital advertising revenue was up 110 percent during the first half of fiscal 2013. The company’s growing digital audience, he said, was also producing new e-commerce opportunities, most notably generating subscription orders for the magazines.

Instead of news, Meredith focuses on editorial products known as special interest publications, or SIPs (which are also sometimes called bookazines, magalogues, or magabooks). Each SIP has a cover that looks like a magazine, is crammed full of ads, and is sold on newsstands. Currently, Meredith publishes nearly 100 SIP titles, including Décor ($12.99), American Patchwork & Quilting ($5.99), and Chicken Dinners ($9.99).

The SIPs allow Meredith to take content that’s appeared in one of its magazines and reuse it. Whereas Meredith’s magazines are printed on a regular schedule and have a limited newsstand life, SIPs are printed on demand and can be sold for months. Because the content has already been paid for, SIPs can be highly lucrative. (Meredith doesn’t break out revenue for its SIPs.)

Lacy—who has led the company since 2006—told analysts in January that during the housing boom Meredith published titles like Beautiful Kitchens & Baths up to six times a year. When the market crashed, Meredith scaled back. “But it’s still the most profitable thing that we do,” said Lacy. “If you’re going to blow up the back of your house and drop $150,000 on the kitchen, it’s not the same investment as a dress or a pair of shoes. We always think of the SIP business as an accordion—we can ramp that thing up like crazy.”

Advertising remains the company’s lifeblood. In 2012 ad sales accounted for $769.8 million of Meredith’s $1.37 billion of revenue. Of that, 64 percent came from the company’s publishing division. The rest came from ad sales at Meredith’s 13 regional TV stations. In 2012, Meredith magazines sold some 9,417 ad pages, according to data from Kantar Media (WPPGY) provided by the Publishers Information Bureau. Better Homes and Gardens led the way with 1,365 ad pages.

Meredith tells advertisers that the company has built a unique machine to tell a brand’s story to 100 million American women, aggregated across a range of titles, each of which come at roughly the same topics—health, shelter, food, and parenting—from slightly different angles. Ad buyers know exactly what they’re getting. “It’s actually very easy when you look at the existing publications to see how they’ve designed their portfolio,” says Audrey Siegel, the president of media agency TargetCast TCM.

Meredith won’t rest until its brands are present in every corner of the house: from magazines in the mail slot to accessories in the bathroom and lawn furniture out back. Wal-Mart Stores (WMT) now sells more than 3,000 Better Homes and Gardens products, including bath rugs, lotion pumps, and fire pits. FTD (UNTD) sells a Better Homes and Gardens line of floral arrangements. Meredith licenses its magazine titles to partner publishers overseas. Diabetic Living is now published in Italy, Greece, and Russia. Since 2008, Realogy, the parent company of Century 21, has sold homes around the country via a Better Homes and Gardens line of residential real estate offices.

Images collected by Bloomberg Businessweek from various Meredith PublicationsWhen Wagner joined Meredith in 2009 as the editor of ReadyMade, he found the culture friendly, disciplined, and relentless. Budgets were ironclad. Wagner recalls that every day the company hung signs announcing the closing price of Meredith’s stock. “It’s not about, ‘Look at this amazing piece of content we did and let’s get inspired,’ ” says Wagner. “It was like, ‘ Look at the stock price!’ You know what they’re working for.”

In 2011, Meredith shut down ReadyMade, and Wagner is now working in marketing for a different company. He believes Meredith is well positioned to come out on top of the current industry upheaval. “They’re the ones who’ve been leading the way in the breakdown between content and marketing,” says Wagner.

Meredith is so good at marketing that it built its own business-to-business agency, which it calls Meredith Xcelerated Marketing, or MXM. The group works directly for brands (current clients include Kraft (KRFT), Chrysler, and Lowe’s (LOW)) selling marketing services—designing print ads, building customized mobile apps, shooting sponsored Web-video series, and deploying word-of-mouth campaigns across sites like Facebook and YouTube. According to Meredith press materials, MXM has more than 700 employees and 150 clients. Currently it generates $150 million in revenue—up from $75 million in 2005.

Meredith is also courting two segments of ad spending that show no sign of weakness—Web video and cable TV—most recently by bulking up Meredith Video Studios, a production unit for advertiser-friendly shows teeming with product integration. Among other things, MVS currently creates female-friendly Web-video series paid for by brands like Kmart (SHLD) and Home Depot (HD). There’s also a TV talk show called The Better Show, that draws from Meredith’s magazines and airs in at least 160 markets, including on Meredith-owned stations such as KSMO in Kansas City, Kan. On March 4, Meredith announced a deal to syndicate The Better Show on the Hallmark Channel, which has 87 million U.S. cable subscribers.

That same day, Lacy appeared at a conference in Palm Beach, Fla., and said that business at Meredith’s marketing agency has never looked stronger. He noted that in 2013, Meredith will broaden its brand-licensing program in real estate and retail. On the publishing side, Lacy is interested in expanding tablet offerings because the margins are so much better. At the moment, he said, Meredith spends $300 million a year on paper, printing, and postage.

Which is not to say Meredith is down on print. In Palm Beach, Lacy indicated that his company’s interest in Time was just the beginning, and that Meredith covets a range of “magazine-based brands.” It’s implicit that his company could do a better job than the current owners at managing these distressed assets. “We were fortunate over the last year to be able to pry both Allrecipes and [Every Day with] Rachael Ray out of Reader’s Digest before their most recent unfortunate bankruptcy filing, and then to pick up both EatingWell and FamilyFun,” said Lacy. “We think we’re a pretty efficient operator.” In other words, they know how to remodel on a budget.